The New Government Stamp Tax And Vat On Property Conveyance
There have been a number of legislative changes in 2014/15, one of the most significant being the implementation of Value Added Tax (“VAT”). VAT is a form of indirect consumption tax charges on the supply of goods and services. This article will explore the impact of VAT on real estate transactions in The Bahamas.
VAT was implemented on 1st of January 2015 at a rate of 7.5% and is governed by the Value Added Tax Act, 2015 (the “VAT Act”), Value Added Tax Regulations, 2014 (the “VAT Regulations”.)
In June, 2015, the Ministry of Finance, VAT Department implemented VAT Rule #2015-025 (Real Estate) (the “VAT Rule”) in an effort to provide clarity relating to VAT on real estate.
When considering the purchase of a property in The Bahamas, there are various professional services involved that will now incur VAT. These include fees for appraisals, title search fees, legal fees and real estate commissions.
Although not a professional fee incurred during the purchase of a residential property, a buyer needs to bear in mind that homeowner association fees are also subject to VAT.
Transfer Of Real Property
VAT and Stamp Duty
According to the VAT Rule, VAT is chargeable on all conveyances or real property valued at more than $100,000. In assessing the value of the property, the VAT Comptroller may consider the purchase price and the appraisal value of the property and the VAT Comptroller has the authority to choose the higher value. Real property valued at $100,000 and under is exempt from VAT.
For the avoidance of doubt please note the following:-
- Conveyances include the sale, lease, assignment or other transfer of real property from an owner/s to another.
- Real Property includes, but is not limited to:
- a) Vacant land
- b) dwellings for first time owner-occupiers whether or not valued over $100,000;
- c) Commercial buildings
- d) condominiums
- e) tenements or any other structures attached to the land;
- f) time-shares; and
- g) any buildings constructed for sale by contractors who are also the owners;
Prior to the implementation of VAT, Stamp Duty was charged on the value of the consideration (either the purchase price or the appraisal value) as per the following schedule:
The Vat Rule notes that first time homeowners who are exempt from Stamp Duty will also be exempted from VAT.
Consider the following examples:
|Value of Consideration||Stamp Duty|
|$0 - $20,000||4%|
|Greater than $100,000||10%|
Subsequent to the implementation of VAT, the Stamp Duty rate changed to a flat 2.5% with a 7.5% VAT being charged in lieu of the former Stamp Duty rate on transactions above $100,000.
The VAT Rule notes that first time homeowners who are exempt from Stamp Duty will also be exempt from VAT.
Consider the following examples:
|Property Value||Tax Payable Pre-Vat||Tax Payable Post-VAT|
|$ 80,000||8% Stamp Duty||2.5% (2.5% stamp duty + 0% VAT)|
|$150,000||10% Stamp Duty||10% (2.5% stamp duty + 7.5% VAT)|
|$500,000 (first home owner)||0% Stamp Duty||0% (0% stamp duty +0% VAT)|
Based on the examples considered, we can see that the total tax payable varies based on the value of the property; however once a transaction is over $100,000 there is no change to the tax due for conveyances of real property. There is however the additional VAT payable on the professional services rendered that relate to the transaction.
With regard to processing payments, VAT is paid first to the VAT Comptroller, who determines the basis on which the VAT should be paid. Once this is completed, the 2.5% Stamp Duty is paid to the Public Treasury.
Who is responsible for the VAT?
The VAT Rule paragraph 31 states that the VAT tax invoice will be issued to the purchaser, which has led to some belief in the market that the purchaser is solely responsible for the VAT at 7.5% and that the vendor is solely responsible for the Stamp Duty (reducing the vendor’s tax burden).
However, the VAT Comptroller has clarified this issue by indicating that while the VAT Rule states that the purchaser will be invoiced for the VAT, the VAT Rule does not stipulate how a vendor and purchaser shall decide to share the payment.
Typically stamp duty was split (50/50) between the vendor and purchaser (unless otherwise agreed). This clarification means that the total tax split of stamp duty and VAT can still be maintained.
On a positive note, if a purchaser is a VAT registrant, that purchaser can claim the VAT payment as an input credit, provided that the property is exempt from the payment of VAT.
Courtesy of GSO/Glinton, O’Brien, Sweeting Darron S. Pickstock
Real Property Tax
The statutes provide for a general assessment of real property by the Chief Valuation Officer of the Commonwealth of the Bahamas. This applies to Bahamians and non-Bahamians owning real property in the Bahamas not exempt from taxation as indicated in "Remarks". "Bahamian" is defined as a citizen of The Bahamas or a company registered under The Companies Act in which at least 60% of the shares are owned beneficially by Bahamians. The returns are due on or before December 31 each year and must be filed with the Chief Valuation Office.
Owners must file a Declaration of Real Property. The return must be signed by the owner and witnessed by an "authorized person", defined as a magistrate, attorney, registered medical practitioner, bank officer, minister of religion, justice of the peace or notary public within the Bahamas or similar person outside of the Commonwealth. Such forms may be obtained from the Chief Valuation Officer.
Property is assessed before October 15. The Chief Valuation Officer, if it appears that any property subject to assessment has not been assessed, may assess the property retroactively to a maximum of 10 years at the required amount.
The Chief Valuation Officer is required to publish before October 15 (once in the Gazette and once in a daily newspaper published and circulated in The Bahamas), a notice stating that:
- Copies of the assessment lists are available to the public at the Treasury and office of the Chief Valuation Officer;
- Assessment notices for each owner of property liable to tax are available at places specified in the notice,
- Five days after the notice's publication, a notice of assessment is deemed served on every owner of property subject to tax.
- A notice of assessment may be sent by mail to any owner of property by the Chief Valuation Officer after publication in the Gazette
- Any other matters deemed necessary by the Chief Valuation Officer, with the Minister's approval.
Objection to a notice of assessment must be made in writing to the Chief Valuation Officer, within 30 days of service of the notice, stating grounds upon which the objection is made. The Chief Valuation Officer may request that the tax levied be paid in whole or in part at the time of objection.
Taxes are due within 60 days of the date on which the assessment notice is deemed to have been served. Also, payment of one or more quarterly installments must be made within those 60 days. These payments should be made to the Public Treasury in Bahamian or US dollars, preferably as a bank draft or international postal order. Personal cheques are not accepted unless bank certified. Foreign cheques must be bank-certified and drawn on a bank in the US or The Bahamas.
Rates of Taxes
The rates of tax on real property are as follows:
In respect of owner-occupied property:
- The first $250,000 of market value is tax exempt
- More than $250,000 and not exceeding $500,000 of market value is Â¾%
- More than $500,000 and not exceeding $5,000,000 of market value is 1%
- More than $5,000,000 of market value is .25%
In respect of unimproved property other than unimproved property exempt by virtue of Section 39 of the Real Property Tax Act:
- First $7,000 of market value is $100
- More than $7,000 of market value 1Â½%.
In respect of any other property:
- First $500,000 of market value is 1%
- More than $500,000 of market value is 2%
Market value is defined as the amount the property would realize, if sold in the open market, without any encumbrances or restrictions. If the return is not filed, the owner is guilty of an offense, and upon conviction thereof, may be fined. Persons knowingly making false statements may be liable to fines, imprisonment, or both fines and imprisonment. If the tax is not paid on or before the last day the tax becomes due, a surcharge will be added.
In the case of an extension of time, the Chief Valuation Officer may postpone the date on which the tax is payable in a particular case, by notice in writing.
Property owned by Bahamians and situated in the Family Islands is exempt from property tax. Property approved as commercial farm land (by the Minister of Agriculture and Marine Resources, and the Minister Finance) may be eligible for property tax exemptions.
Unimproved property owned by Bahamians, meaning property without physical additions or alterations, or any works benefitting the land which have not increased the market value thereof by $5,000 or more;
Places of religious worship; school buildings and their gardens and playing areas;
Property owned by foreign governments;
Property owned by foreign nations used for consular offices or residences of consular officials and employees;
Property used exclusively for charitable or public service from which no profit is derived